Morgan
Stanley faces a new investigation from Wall Street’s top regulator over how the
bank screens clients for money laundering risks, adding to the firm’s
compliance challenges.
Morgan Stanley Under Fresh
FINRA Scrutiny Over Client Vetting Practices
FINRA is digging into
Morgan Stanley’s client vetting procedures, risk rankings, and related
practices spanning from October 2021 through September 2024, according to the
Wall Street Journal. The probe covers both the bank’s massive wealth management
division, which includes E*Trade,
and its institutional securities unit that handles trading operations.
The
regulator has been asking for extensive documentation about U.S. and
international customers across these divisions. FINRA also wants organizational
charts, reporting structures, and details about Morgan Stanley’s internal
client risk-scoring systems.
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Issues
Data Quality Issues
Surface
The
investigation hit some bumps early on. Bank employees flagged concerns that
initial data sent to FINRA was incomplete or contained errors. This forced
Morgan Stanley to submit additional information after regulators pointed out
the gaps.
Morgan
Stanley has received at least six data requests from FINRA, including one that
came through in recent weeks. The volume of information being sought suggests
regulators are taking a comprehensive look at the bank’s compliance systems.
Bank Defends Its Progress
A Morgan
Stanley spokesperson told the WSJ that the bank “has made significant
investments in its anti-money-laundering and client-vetting programs,”
adding that “such regulatory reviews are not unique to the bank and do not
indicate problems with its business or controls”.
The bank
has been working to address longstanding concerns from the Federal Reserve
about risk management controls in its wealth management unit. Those issues have
been on regulators’ radar for years.
Related: Morgan
Stanley Hit With $15 Million SEC Fine Over Client Fund Theft
History of Compliance
Problems
This isn’t
Morgan Stanley’s first run-in with anti-money laundering enforcement. FINRA hit
the bank with
a $10 million fine in December 2018 for compliance failures that stretched
over five years.
The bank is
also dealing with potential penalties from other federal investigations into
its anti-money laundering practices. Earlier this year, Swiss prosecutors fined
Morgan Stanley’s local unit $1.1 million over money laundering controls related
to a Greek bribery scandal.
The latest
FINRA probe adds regulatory pressure as Morgan Stanley works to clean up its
compliance operations. Neither FINRA nor Morgan Stanley immediately responded
to requests for additional comment beyond what was reported in the Wall Street
Journal.
This article was written by Damian Chmiel at www.financemagnates.com.
